State revenues up in November, but unlikely to stay that way

AUGUSTA, Maine — State revenues were in the black for November, $2.5 million above estimates. But they are still in the red for the first four months of the budget year by $4.2 million and budget estimates are based on Congress extending the payroll tax cut and unemployment benefits for 2012, which is in doubt.

“I certainly would rather be in the black at this point instead of in the red,” said Finance Commissioner Sawin Millett in an interview Monday. He said new revenue projections that take effect this month will increase the red ink for the budget year by another $10 million. He said the continuing slow economic recovery will make it difficult to make up the $14.2 million shortfall in a single month.

Millett said while the sales tax is above estimates for the month and for the year, it is up by just 2.3 percent so far this budget year.

“We will be watching that one very closely,” he said in an interview Monday. “What we have been seeing nationally is that there was a good bump up around Black Friday in November, but since then sales have been slower than what was expected.”

Sen. Richard Rosen, R-Bucksport, co-chairman of the Appropriations Committee, agrees that sales have not been as strong as hoped. He owns a retail store and said sales there have followed that same pattern. He noted reports that significant increases are being recording in online sales.

“I think all states are going to have to look at how they collect sales taxes and see if they can get some of the tax owed from those online sales that is not being collected,” he said.

Rosen said it appears the economy is continuing to “bounce along the bottom” and has yet to start a period of continued growth. He said it is important to note that the corporate income tax is continuing to come in above estimates and that the personal income tax is meeting estimates.

“I think it shows that most Maine people are continuing to hurt in this economy,” said Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the committee. “When people are worried if they will have a job next year, they are not going to be buying a lot of items, even during the holidays.”

She agreed that it appears Maine’s economy is continuing to slowly improve, with revenues reflecting the soft economy as some revenues fall below estimates while others do better than expected.

“I would like to see stronger revenue from the sales tax because I think the sales tax is an indication of how Maine families are doing in their capacity to purchase goods,” she said.

One area that continues to significantly fall below estimates is revenue from fines and penalties. Over the year it is supposed to be more than $28 million, but it is 19.7 percent below projections so far this year.

Millett believes paying fines is very difficult for some Mainers in this economy. Rotundo agrees.

“It’s really that people just don’t have it pay,” she said. “They can’t afford it when they are having trouble buying groceries and paying the rent.”

Millett said when the revenues were reforecast last month, both national economic analysis firms that the state uses, Global Insights and Moody’s, assumed Congress would extend both the payroll tax cut and unemployment benefits. He said if Congress does not act, it will have an impact on state revenues.

Mike Allen, associate commissioner for tax policy at Maine Revenue Services, said in an email that failure to extend either would have an impact on revenue projections for this budget year.

“If Congress fails to pass and either walks away from the extension all together or is still debating the issue when the CEFC (Consensus Economic Forecasting Committee) meets there is a good chance the economic forecast will be downgraded in January,” he wrote.

The economic forecast is used to project state revenues and if the economic forecast is negative, than revenue estimates will be decreased.